THE PRINCIPAL COMMISSIONER OF INCOME TAX-3 vs. N K PROTEINS LTD

ORAL ORDER (PER : HONOURABLE MR. JUSTICE J.B.PARDIWALA) 1 This Tax Appeal under Section 260A of the Income Tax Act, 1961 (for short, ‘the Act, 1961’) is at the instance of the Revenue and is directed against the order passed by the Income Tax Appellate Tribunal, Ahmedabad, Bench ‘C’ Ahmedabad dated 12th December 2019 in the ITA No.699/Ahd/2015 for the A.Y. 2010-11. 2 The Revenue has proposed the following substantial questions of law for the consideration of this Court: “[A] Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in quashing the order u/s 263 of the Income tax Act, 1961, passed by the Principal Commissioner of Income Tax? [B] Whether Tribunal was justified in facts and in law in ignoring the finding of the Principal Commissioner of Income Tax that necessary enquiries had not been conducted by the Assessing Officer while framing assessment in undue haste resulting in non application of mind on the part of the Assessing Officer? [C] Whether on the facts of the case and in law Tribunal is right to hold that the Assessing Officer conducted necessary and sufficient enquiries while should have been made warranted on facts of the case in respect of each of the issues raised in the impugned order u/s 263 dated 25/02/2015 as recorded in the 263 order in general and in para-3 (items 1 to 7) in particular and also whether proper submissions in respect of these were made by the assessee to Assessing Officer before assessment was completed?” 3

We have heard Ms. Mauna Bhatt, the learned Senior Standing Counsel appearing for the Revenue. 4 It appears from the materials on record that the assessee company filed its return of income on 29th September 2010 declaring total income at Rs.15,31,24,189/-. The assessment order was passed under Section 143(3) of the Act dated 26th March 2013 determining the taxable income of the assessee at Rs.15,47,54,611/-. 5 The CIT-3, Ahmedabad took up the order of assessment dated 26th March 2013 referred to above in suo motu revision in exercise of his power under Section 263 of the Act, 1961 and vide order dated 26th March 2013 quashed and set aside the assessment order. The CIT-3 came to the conclusion that the assessment order under Section 143(3) of the Act, 1961 referred to above is erroneous and prejudicial to the interest of Revenue. 6 Later, pursuant to the directions of the CIT-3, Ahmedabad vide order dated 15th March 2016, the accounts of the assessee’s company were audited under Section 142(2A) of the Act. The special audit submitted his report dated 16th September 2016. The order under Sections 143(3) read with 263 and 142(2A) respectively of the Act, 1961 was passed on 11th November 2016 making various additions on the basis of the report of the special audit as well as the order passed under Section 263 of the Act. The issue related to the payment to the related parties covered under Section 40A(2)(b) of the Act including the job work charges, purchases of services, etc. 7 The assessee, being dissatisfied with the order passed by the CIT-3, Ahmedabad under Section 263 of the Act, preferred an appeal before the Appellate Tribunal. The Appellate Tribunal vide its order dated 12th December 2019 partly allowed the appeal. 8 The Revenue, being dissatisfied with the impugned order passed by the Tribunal has come up with the present appeal. The Appellate Tribunal, while partly allowing the appeal filed by the assessee, held as under: “9

We have heard the rival contentions of both the parties and perused the materials available on record. In the instant case, the Ld. Pr.CIT has held that the order of the AO as erroneous insofar prejudicial to the interest of Revenue on account of non- verification of the items as discussed above.

“11. Regarding additions to fixed assets, furnish the copies of major bills of additions to Fixed Assets. Give details in the following proforma: Fixed Asset Asset Block Date of purchase Date of putting to use Installation expenses, freight expenses, insurance expenses incurred if Whether any loan taken for purchase of this asset If loan taken, date of sanction of loan and date of first Deprecia tion claimed Whether Additional Depreciati on u/s. 32(iia) claimed any payment of interest If any extra charges like insurance, carriage, interest etc. have been incurred for the purchase of these assets, please provide bills. The assessee is response to such notice filed the reply vide letter dated 5th November 2012. The relevant extract of the letter is reproduced as under:

“9. The details of addition to fixed assets i.e. description of asset, date put to use and value of the asset is already given in Annexure-3A to the audit report under form 3CD.”

“8. Details of the secured loans taken from banks alongwith the Name and address of the Branch and Type of loan and the amount of loan taken. Also state the security hypothecated / mortgaged.

“7. The details of secured loans along with the details of security furnished relevant to AY 2010-11 is enclosed.

Therefore the question of applicability of Section 40A(2)(b) does not arise.”

“15. Give details of outstanding provisions in the following proforma: Provision made for Amount If payment made subsequently, date of discharge of liability

“7. The details of secured loans in the required format relevant to AY 2010-11 is enclosed.”